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Halftime: Are Commodities Trying To Tell You Something?

On Thursday, investors were looking high and low for new signs to determine if the market’s march higher was about to peter out.

Two of the major indexes have reached inflection points. The S&P 500 faces technical resistance near 1,300, an area that saw a cluster of closing and session highs during August 2008.

Meanwhile the Dow has been flirting with the the 12,000 mark, an important psychological level and a possible sell trigger after eight weeks of gains by the blue-chip average.

In the quest for the next market tell, the Fast traders suggest keeping an eye on the action in commodities.

What must you know? What’s the trade?

Instant Insights with the Fast Money traders

“Not to cast dispersions at equity traders but commodities typically lead equities,” says Fast trader Guy Adami and "I think they’re trying to tell you something. Oil is down again."

In fact, the energy sector was one of the worst performers across the S&P on Thursday.

But Adami isn't just looking at oil. "Gold can’t get out of its own way. And copper is starting to show little cracks,” he says.

Joe Terranova kinda' feels the same. “Commodities do lead the market and in anticipation of the Chinese New Year we’re seeing selling pressure in precious metals as well as in the price of oil. Pay attention to that. There is concern.”

That suggests the next leg in the broader market could be lower. But the action in commodities isn’t the only reason to trade cautiously.

Steve Grasso says with the S&P around 1300, “ investors are getting out of high beta names.” In other words, at this key level investors feel it’s prudent to take profits.

”This 1300 level has been resistance,” adds Guy Adami. Keep an eye on the price action.

Jon Najarian has noticed the trend too. Speaking about the intra-day turns in Freeport McMoRan and the OIH the says, "institutional traders are heading for the exits after (those stocks) popped," he says. "I’m not surprised by the moves but I am surprised that it was done in concert."


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TRADING NETFLIX

Meanwhile, shares of Netflix soared on Thursday as investors and analysts cheered the company's strong results.

After the bell Wednesday, Netflix reported a surge in fourth-quarter profit and said it had signed up another 3 million subscribers -- surpassing even executives' expectations. "They did it again!" wrote JPMorgan analyst Imran Khan and his team in a note to investors. JPMorgan raised its price target on Netflix to $224.00 from $186.00.

What’s the trade?

Guy Adami is somewhat negative on the stock. “Today could be one of those blow-off tops that we talk about, he says. “At $209 and change I have to wonder if Netflix has hit a short-term top.”

Jon Najarian is also cautious. “Seven different firms upped their ratings on this firm,” he says. “That smacks of a top to me.”

Steve Grasso is a little more optimistic, but not much. “I think it’s tough to get in at these levels. If you want to play, I’d just dip a toe.”

However Canaccord analyst Heath Terry is a Netflix bull. “I’ve followed the stock for the last 10 years, and there’s always been a rolling bear case around Netflix that hasn’t panned out,” he says in a live interview. Terry feels the positives (such as Blockbuster going away, rental stores closing, and lower distribution costs) far outweigh the negatives.

Although he concedes someday Netflix will max out the number of subscribers, “I think that’s a long way away. We’re in the early innings of this.”

Terry just raised his Netflix price target to $250 from $225.

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TOPPING THE TAPE: POTASH

The traders are keeping a close eye on Potash after its fourth quarter profits more than doubled largely due to strong sales amid increasing demand.

What's the trade?

Potash seems to have an upward bias, says Guy Adami. And In the space, I’m also watching Deere, he says. I think it pushes to $100.

I’m sticking with my long Potash position too, says Joe Terranova.


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Trader disclosure: On Jan. 27, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Jon Najarian owns (F), is short (F) calls. Jon Najarian owns (FRO), is short (FRO) calls. Jon Najarian owns (GS), is short (GS) calls. Jon Najarian owns (GM), is short (GM) calls. Jon Najarian owns (WMT), is short (WMT) calls. Jon Najarian owns (VZ), is short (VZ) calls. Jon Najarian owns (SNDK), is short (SNDK) calls. Jon Najarian owns (SLE) puts. Jon Najarian owns (GDX) puts. Jon Najarian owns (AMZN) call spreads. Guy Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE) and (BTU). Steve Grasso owns (ASTM), (BA), (BAC), (BWC), (C), (CSCO), (JPM), (LIT), (LPX), (MHY), (NDAQ), (PFE), (PRST) and (S). Joe Terranova Owns (VRTS), (C), (UPL), Terranova Owns (GM), (PEP), (TLT), (MS), (POT), (AAPL), (ARUN), (LTD), (PVH), (CVI), (CVE), (CPX), (CNQ), (FCX). Joe Terranova is short Gold.

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GUY ADAMI
Adami's wife works for (MRK)

STEVE GRASSO
Stuart Frankel & Co and its partners own (AAPL)
Stuart Frankel & Co and its partners own (ABX)
Stuart Frankel & Co and its partners own (CSCO)
Stuart Frankel & Co and its partners own (CUBA)
Stuart Frankel & Co and its partners own (GERN)
Stuart Frankel & Co and its partners own (HSPO)
Stuart Frankel & Co and its partners own (NEM)
Stuart Frankel & Co and its partners own (NWS.A)
Stuart Frankel & Co and its partners own (NYX)
Stuart Frankel & Co and its partners own (PDE)
Stuart Frankel & Co and its partners own (PFE)
Stuart Frankel & Co and its partners own (PRST)
Stuart Frankel & Co and its partners own (RDC)
Stuart Frankel & Co and its partners own (S)
Stuart Frankel & Co and its partners own (SDS)
Stuart Frankel & Co and its partners own (UAL)
Stuart Frankel & Co and its partners own (XRX)
Stuart Frankel & Co and its partners own (SDS)
Stuart Frankel & Co and its partners are short (QQQQ)
Stuart Frankel & Co and its partners are short (AAPL)

JOE TERRANOVA
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LPHI)
Virtus Investment Partners Owns More Than 1% Of (NCRI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of (CLB)

ANTHONY SCARAMUCCI
Scaramucci has no disclosures

HEATH TERRY
Terry has no disclosures on (NFLX)

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